Influential Attributes on Medical Expense for Korean Older Adults Based on Mental Accounting: Panel Data Analysis...

Backgrounds: Korean society is entering an aging society, and this phenomenon indicates the need for preparation for aging in Korean society. In such a situation, exploring the characteristics of the elderly can be considered important for preparation. The objective of this study is to identify the determinants of medical expenses among older adults in South Korea. The key factors analyzed include food, leisure, and housing expenses, as well as lifestyle choices such as drinking and smoking. Method: Data from the Korean Longitudinal Study of Aging, covering 7374 observations from the years 2018 and 2020, are adopted for statistical analysis. This research explores the inverted-U-shape effect of food, leisure, and housing expenditures on medical costs, grounded in the concepts of diminishing marginal utility and mental accounting. A quadratic panel regression analysis is used to test the hypotheses, controlling for variables such as birth year, gender, and personal assets. Results: The results show that food and housing expenses have an inverted-U relationship with medical expenditures based on diminishing marginal utility and mental accounting as the theoretical foundation. However, leisure expenses, drinking, and smoking do not significantly affect medical expenses. Furthermore, this study identifies the optimal expenditure levels for maximizing medical spending through the first-order condition. Conclusions: These findings provide important insights for the development of policies aimed at improving the financial well-being of older adults in South Korea. Moreover, this study contributes to the literature by applying the concepts of mental accounting and the law of diminishing marginal utility to better understand the financial behavior of older adults.